Dana Blankenhorntag:typepad.com,2003:weblog-2954372019-03-15T05:40:00-04:00There is no energy shortage. The sun shines, the wind blows, the tides roll, we live on a molten rock.TypePadTechnology’s Dilemmatag:typepad.com,2003:post-6a00d83451da3169e20240a444e5bb200c2019-03-15T05:40:00-04:002019-03-15T05:40:00-04:00There are lots of things we can do to put money back to work, to recycle it and create more wealth from it, wealth we can then reinvest in saving this planet from what now looks like inevitable destruction.We don’t have to kill the goose that laid technology’s golden eggs.Dana Blankenhorn<div xmlns="http://www.w3.org/1999/xhtml"><p><a class="asset-img-link" href="https://200billionscandal.typepad.com/.a/6a00d83451da3169e20240a444e4e9200c-pi" style="float: right;"><img alt="Bezos and robot dog" class="asset asset-image at-xid-6a00d83451da3169e20240a444e4e9200c img-responsive" src="https://200billionscandal.typepad.com/.a/6a00d83451da3169e20240a444e4e9200c-250wi" style="width: 250px; margin: 0px 0px 5px 5px;" title="Bezos and robot dog"></img></a>There is a bug at the heart of innovation, of technology, and of capitalism itself.</p>
<p>It lies in the incentives we give innovators.</p>
<p>It lies in stock ownership.</p>
<p>What liberals have condemned is the fact that nearly all the profit from innovation is going to a very small number of people. The winners’ founders, and their venture capital partners, get fortunes measured in the billions of dollars. Their key people also wind up as multi-millionaires. Everyone else, whether they’re line staff or just ordinary schmoes, can pound sand.</p>
<p>Sure, we all get some of the benefits. It’s cool to have cat litter delivered. It’s amazing that I can learn anything I want to know within moments. I can call my kid in Europe free. The software and hardware my son accesses, to automate cutting-edge medical tests is amazing. As a result, we’re starting to understand not only the genetic code, but what lies beneath it.</p>
<p>Still it’s true. The rewards are all going to a very small number of people. Jeff Bezos will never be able to spend the $150 billion he has access to. Bill Gates will never be able to give away the fortune he has won. Philanthropists are taking on the role of governments, self-appointed boards deciding the priorities on the nation’s wealth.</p>
<a class="asset-img-link" href="https://200billionscandal.typepad.com/.a/6a00d83451da3169e20240a492a0e5200b-pi" style="float: left;"><img alt="A.G. Sulzberger" class="asset asset-image at-xid-6a00d83451da3169e20240a492a0e5200b img-responsive" src="https://200billionscandal.typepad.com/.a/6a00d83451da3169e20240a492a0e5200b-250wi" style="width: 220px; margin: 0px 5px 5px 0px;" title="A.G. Sulzberger"></img></a>Making it worse, as I noted <a href="https://www.danablankenhorn.com/2019/03/capitalistic-feudalism.html">last week</a> , are rules that let founders pass these fortunes on to their descendants. They’re turning a few lucky heirs into feudal dukes and duchesses. Why is A.G. Sulzberger, still under 40, one of the most powerful men in America? Because 50 years ago his family created a dual-share structure for <em>The New York Times</em> when it went public. He’s publisher for life, as his father and grandfather were before him.
<p>The only difference between Sulzberger and MBS, the murderous Saudi heir, is that Sulzberger’s path to power was easier. He has a small family. He’s Kim Il Sulz.</p>
<p>I am writing against my own self-interest here.</p>
<p>Back in the mid-aughts, my wife’s company began handing out stock options by the bucketload. The stock was selling under $10 per share. Its technology platform was outdated. She was part of the team that would update it.</p>
<p>Over the next few years she was given options on thousands of shares. Later, she was given grants of hundreds more. We did what most people would do. We added on to the house. We put our kids through college. We paid into our retirement accounts. The kids are finally getting out now, with no loans and money in the bank. It’s my greatest financial achievement, and it isn’t even mine.</p>
<p><a class="asset-img-link" href="https://200billionscandal.typepad.com/.a/6a00d83451da3169e20240a444e53e200c-pi" style="float: right;"><img alt="Blankenhorn castle" class="asset asset-image at-xid-6a00d83451da3169e20240a444e53e200c img-responsive" src="https://200billionscandal.typepad.com/.a/6a00d83451da3169e20240a444e53e200c-250wi" style="width: 250px; margin: 0px 0px 5px 5px;" title="Blankenhorn castle"></img></a>I’m supposed to be a tech journalist, a financial journalist. I could have taken another path.</p>
<p>I could have kept that stock, instead of selling it for expenses. Had I done so I’d have a spectacular balance sheet now. I would have about $500,000 in loans to cover the costs of college and the house. I would also have stock worth literally millions of dollars. I’d be set for life. So, too, my kids. Maybe I could buy them a county, make my son the new Count Blankenhorn, and rebuild <a href="https://mobile-history.eu/objectoverview.php?land=Germany,603&amp;state=Baden-W%C3%BCrttemberg,586&amp;county=Heilbronn,179&amp;poi=Blankenhorn%20Castle,5527">the family castle.</a> <a href="https://mobile-history.eu/objectoverview.php?land=Germany,603&amp;state=Baden-W%C3%BCrttemberg,586&amp;county=Heilbronn,179&amp;poi=Blankenhorn%20Castle,5527"></a> Yes, there is such a thing.</p>
<p>Corporate founders, and their top executives, routinely get these kinds of pay packages. The incentives are all in stock. As the stock grows in value, so do their fortunes. When they cash out, if they cash out, they can become billionaires. But the wealth they’re creating is all tied up in the stock. And it’s all in their hands.</p>
<p><a class="asset-img-link" href="https://200billionscandal.typepad.com/.a/6a00d83451da3169e20240a492a112200b-pi" style="float: left;"><img alt="At&amp;t logo" class="asset asset-image at-xid-6a00d83451da3169e20240a492a112200b img-responsive" src="https://200billionscandal.typepad.com/.a/6a00d83451da3169e20240a492a112200b-150wi" style="width: 150px; margin: 0px 5px 5px 0px;" title="At&amp;t logo"></img></a>That’s why we have a backlash against innovation in the Democratic primary. Elizabeth Warren wants to break up the Cloud Czars – Apple, Facebook, Google, Amazon – the lot of them. She wants to punish the economy’s risk-takers for having succeeded, despite none of these companies having ever taken a dime of government money in building their empires. The Cloud Czars (including Microsoft) have a market cap of nearly $4 trillion. Warren wants to open that piggy bank and use it to give Americans a raise, free college, better healthcare, and new infrastructure.</p>
<p>Who would win? Other than the politicians? Politically connected companies like AT&amp;T would win big. Consider that right now Facebook, which began investing in cloud at the start of this decade, is worth more than twice AT&amp;T, which didn’t. If Facebook were forced to separate its cloud data centers from the services that created them, AT&amp;T could buy them at a knock-down price. AT&amp;T, which has never seen a government hand-out it couldn’t grab, a government teat it couldn’t suck, a company that has withheld innovation from the market and instead grabbed government subsidies on unmet promises for “rural” or “inner city” broadband, would again be given complete control of our economy.</p>
<p><a class="asset-img-link" href="https://200billionscandal.typepad.com/.a/6a00d83451da3169e20240a492a131200b-pi" style="float: right;"><img alt="Jack ma at davos" class="asset asset-image at-xid-6a00d83451da3169e20240a492a131200b img-responsive" src="https://200billionscandal.typepad.com/.a/6a00d83451da3169e20240a492a131200b-250wi" style="width: 240px; margin: 0px 0px 5px 5px;" title="Jack ma at davos"></img></a>Who else would win? Alibaba would win. Tencent would win. China Mobile would win. Chinese companies would remain free to subsidize capital investment with cash flow from commerce, video games, and chat services. They would grow, while our cloud czars, tied down by regulation and quarterly financials, would wither.</p>
<p>I don’t disagree that the current situation is unsustainable. But Warren’s proposal would destroy American competitiveness.</p>
<p>We can start by ending the dual-share structure. Toss the Sulzbergers back on the market, along with the Murdochs, Sumner Redstone’s heirs, and the Google guys (among others). One dollar should mean one vote in the corporate boardroom. The market discipline should, when idiot heirs gain control, or the founders falter, lead to new owners and new fortunes.</p>
<p><a class="asset-img-link" href="https://200billionscandal.typepad.com/.a/6a00d83451da3169e20240a492a155200b-pi" style="float: left;"><img alt="Tax-havens" class="asset asset-image at-xid-6a00d83451da3169e20240a492a155200b img-responsive" src="https://200billionscandal.typepad.com/.a/6a00d83451da3169e20240a492a155200b-250wi" style="width: 250px; margin: 0px 5px 5px 0px;" title="Tax-havens"></img></a>But we can do more. We can overhaul the tax code, creating new income tax tiers at $20 million, $100 million, and $1 billion of adjusted gross income. We can, if we like, create a “wealth tax,” a property tax applied to all of someone’s holdings, a rate their hedge fund managers currently charge to fritter those fortunes away. We should also, along with our allies, go after all the world’s tax havens. Shut down the Cayman Islands, Monaco and the Isle of Man. Global taxes should be applied where the money is made, no exceptions.</p>
<p>States and cities should be prohibited from bribing companies to move in with tax breaks, whether that’s just across a river, as with the Atlanta Braves and its stadium, across the country, as with Amazon and its headquarters, or across an ocean, as with Korea’s Hyundai and its factories. We should have estate taxes. No more third generation football owners like the Rooneys of Pittsburgh, unless they sell off the rest of their holdings. Hereditary power creates artificial scarcity, which inflates prices.</p>
<p>There are lots of things we can do to put money back to work, to recycle it and create more wealth from it, wealth we can then reinvest in saving this planet from what now looks like inevitable destruction.</p>
<p>We don’t have to kill the goose that laid technology’s golden eggs.</p>
<p> </p>
<p> </p></div><div class="feedflare">
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</div>https://www.danablankenhorn.com/2019/03/technologys-dilemma.htmlCapitalistic Feudalismtag:typepad.com,2003:post-6a00d83451da3169e20240a44208da200c2019-03-08T05:25:00-05:002019-03-08T05:25:00-05:00Corporate democracy is as important as electoral democracy. If we don’t fight for it, it will swallow the other kind of democracy.Thanks to Rupert Murdoch, it already has.Dana Blankenhorn<div xmlns="http://www.w3.org/1999/xhtml"><p><a class="asset-img-link" href="https://200billionscandal.typepad.com/.a/6a00d83451da3169e20240a44207a9200c-pi" style="float: right;"><img alt="Declaration of independence committee" class="asset asset-image at-xid-6a00d83451da3169e20240a44207a9200c img-responsive" src="https://200billionscandal.typepad.com/.a/6a00d83451da3169e20240a44207a9200c-300wi" style="width: 300px; margin: 0px 0px 5px 5px;" title="Declaration of independence committee"></img></a>The central problem of our time is the march toward feudalism.</p>
<p>It began among capitalists.</p>
<p>Democracy is essential because it lets people change their minds and, upon changing them, reform the institutions that control their lives. That’s what the <a href="http://www.ushistory.org/declaration/document/"><em>Declaration of Independence</em></a> is about. It argues that despotic systems must be overthrown when they threaten our “life, liberty” or pursuit of happiness.</p>
<p>Many people, including me, have argued that the current attack on democracy began with <a href="https://www.danablankenhorn.com/2017/07/the-jim-crow-project-.html"><em>The Jim Crow Project</em></a>.</p>
<p>But long before one of our major political parties abandoned democracy, business did. It happened as these things usually do, with the very best of intentions.</p>
<p>As I noted last week, the system that came into effect in 1789 <a href="https://www.danablankenhorn.com/2019/03/we-are-all-founders.html">had only property owners voting.</a> The true genius of succeeding generations has been to expand the right to vote, thus the pool of those who can effect change, to more and more people. This work continues, and it’s important.</p>
<p>But there’s another kind of democracy, corporate democracy. It may be even more important than electoral democracy because even functional democracies operate by the Golden Rule – he who has the gold makes the rules.</p>
<p>Before we can hope to have electoral democracy, then, we must have corporate democracy.</p>
<p><a class="asset-img-link" href="https://200billionscandal.typepad.com/.a/6a00d83451da3169e20240a44207c8200c-pi" style="float: left;"><img alt="Adolph ochs" class="asset asset-image at-xid-6a00d83451da3169e20240a44207c8200c img-responsive" src="https://200billionscandal.typepad.com/.a/6a00d83451da3169e20240a44207c8200c-250wi" style="width: 220px; margin: 0px 5px 5px 0px;" title="Adolph ochs"></img></a>When <em>The New York Times</em> became a public company in 1969, it was allowed to reject corporate democracy. The paper came public under a “dual-share” structure in which the Ochs-Sulzberger family, which bought the paper in 1896, own 88% of the “Class B” shares, which in turn control the company. This means <a href="https://en.wikipedia.org/wiki/The_New_York_Times">no one can buy <em>The New York Times</em> without taking out its founding family. </a></p>
<p>In practice it means that A.G. Sulzberger, born in 1980, became the hereditary publisher of the <em>Times </em><a href="https://www.recode.net/2018/11/5/18063558/new-york-times-nyt-ag-sulzberger-publisher-kara-swisher-recode-decode-podcast">in 2017.</a> “<em>The New York Times</em> is not for sale,” he said last year, and reporters breathed a sigh of relief.</p>
<p>They shouldn’t have. A.G. Sulzberger has no more qualifications than I do to be the publisher of <em>The New York Times</em>, save his name. He is an absolute monarch. His word is law, unless it defies that of his family, whose trust owns those Class B shares. (Cue the Borgia music.)</p>
<p>There are people I know and (usually) trust who praise God almighty for this. But it’s a precedent that has become common in the media business. Most of our media moguls are hereditary Kings, <a href="https://variety.com/2015/biz/features/dual-class-stock-structures-sumner-redstone-rupert-murdoch-comcast-1201459120/%20">defiant of democratic norms.</a> Is it any wonder that they tend not to support reform?</p>
<p>The worst of these is Rupert Murdoch, who defeated an attempt to end the two-class share structure at Fox <a href="https://www.reuters.com/article/fox-agm/shareholders-take-aim-at-murdochs-with-fox-voting-rights-push-idUSL1N1NJ1RE">as recently as 2017.</a> Rupert Murdoch is as much an emperor as the King of Saudi Arabia, and his designated successor, Lachlan, will succeed him, just as MBS will succeed King Salman. That may be why Fox gets along so well with autocrats.</p>
<p><a class="asset-img-link" href="https://200billionscandal.typepad.com/.a/6a00d83451da3169e20240a48fcaf0200b-pi" style="float: right;"><img alt="Rupert murdoch" class="asset asset-image at-xid-6a00d83451da3169e20240a48fcaf0200b img-responsive" src="https://200billionscandal.typepad.com/.a/6a00d83451da3169e20240a48fcaf0200b-150wi" style="width: 150px; margin: 0px 0px 5px 5px;" title="Rupert murdoch"></img></a>By eliminating corporate democracy, media companies have put themselves on the side of the world’s tyrants, and it’s been going on for 50 years. Murdoch has particularly abused that position. No one is more responsible for Brexit, or for Trump, than Rupert Murdoch, whose papers, TV stations, and cable outlets relentlessly condemn democracy and side with the absolute monarchs they are.</p>
<p>I say, stop worrying about Trump. Stop worrying about the Republican Party. Worry about Rupert Murdoch. Worry about Lachlan Murdoch. If you want to remove the chains binding you to a system that rewards the few over the many, <a href="https://hbr.org/2018/12/should-dual-class-shares-be-banned">end dual-class shareholding. </a></p>
<p>It’s bad enough when the news you read and see is controlled by hereditary monarchs. This dual-class menace has now spread to the general economy, particularly the tech economy that is my beat.</p>
<p>You can’t take the Fords out of Ford Motor. Only bankruptcy can. You can’t take out Larry Page and Sergey Brin at Google. They control the voting shares. Under Armour, Blue Apron, and Snapchat are among the other companies that have adapted this structure, to protect the founders (and by extension their families) from the ravages of the market.</p>
<p><a class="asset-img-link" href="https://200billionscandal.typepad.com/.a/6a00d83451da3169e20240a48fcb2b200b-pi" style="float: left;"><img alt="Sumner-redstone and paramount" class="asset asset-image at-xid-6a00d83451da3169e20240a48fcb2b200b img-responsive" src="https://200billionscandal.typepad.com/.a/6a00d83451da3169e20240a48fcb2b200b-300wi" style="width: 300px; margin: 0px 5px 5px 0px;" title="Sumner-redstone and paramount"></img></a>More to the point, they protect hereditary monarchs from the discipline of the market, from the reality of capitalism.</p>
<p>When most people argue about this issue, <a href="https://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=9447&amp;context=penn_law_review">they mistakenly focus on its financial aspects.</a> After all, Blue Apron and Snapchat are doing poorly. But the relative merits of these companies, as well as Comcast, Liberty Media, DISH Network, and Viacom, which also share this “structure,” misses the point.</p>
<p>The point is that ownership should represent ownership. If I buy a share of common stock, it should be the same as any other share of common stock. The real owners of dual share companies, the people who have invested the most money in them, don’t control them, and while the result might be destruction of value, as in the case of Viacom, that’s not the point.</p>
<p>Democracy is the point. Letting capitalism work is the point. If capitalism rules democracy, and it does, and if capitalism is based on hereditary power by people who didn’t earn their positions, then corporate democracy will, in time, destroy the other kind.</p>
<p><a class="asset-img-link" href="https://200billionscandal.typepad.com/.a/6a00d83451da3169e20240a48fcb80200b-pi" style="float: right;"><img alt="Lyftfoundersbump" class="asset asset-image at-xid-6a00d83451da3169e20240a48fcb80200b img-responsive" src="https://200billionscandal.typepad.com/.a/6a00d83451da3169e20240a48fcb80200b-250wi" style="width: 220px; margin: 0px 0px 5px 5px;" title="Lyftfoundersbump"></img></a>It’s already doing that. Turn on Fox News if you don’t believe me.</p>
<p>The attraction of becoming a prince, and of making your 22<sup>nd</sup> century heirs into Sulzbergers, is irresistible given the lack of political pushback. That’s why Lyft, which is now preparing to go public, plans its own dual-share structure. Absolute power will be lodged in co-founders Logan Green and John Zimmer, <a href="https://www.marketwatch.com/story/lyft-ipo-5-things-the-ride-hailing-company-just-revealed-2019-03-01">who have just 0.05% of the common, but will have voting control. </a></p>
<p>This is how the march to feudalism works. It’s how every pernicious trend works. It starts small. It may even start with good intentions, like protecting the newsroom from a buy-out, allowing reporters to do their jobs without fear or favor.</p>
<p>But that’s never how it ends. At some point, evil ideas must be confronted. When they’re proven to be evil ideas, when evil people use these ideas to evil ends, then it’s up to the rest of us to do something. Or suffer the consequences.</p>
<p>Corporate democracy is as important as electoral democracy. If we don’t fight for it, it will swallow the other kind of democracy.</p>
<p>Thanks to Rupert Murdoch, it already has.</p></div><div class="feedflare">
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</div>https://www.danablankenhorn.com/2019/03/capitalistic-feudalism.html